Best Practices for Risk and Compliance in Midsized Banking

As the money movers, both corporate and personal, banks hold enormous sway over the economic environment. However, that power is often wielded irresponsibly as financial professionals cling to their outdated manual processes to complete their period end. Regulatory compliance and financial risk are ever-present and ever-changing threats within banking and finance, and these employees must have a dependable process in order to avoid costly and embarrassing misstatements.

As you’re probably well aware, the U.S. federal government, responding to past negative economic ramifications, imposed a series of regulatory standards that affected banks above a certain asset threshold. Known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, these standards have been in place since 2010.

Recently, that threshold was raised, though with a small modification. Specifically, the ‘Bank SIFI’ threshold of the Dodd-Frank act was raised from $50 to $250 billion.

The amendment comes with the caveat that the Federal Reserve retains the discretion to apply enhanced regulatory standards to any specific bank greater than $100 billion.1

While the amendment ostensibly gave banks a bit more leeway as they grow, it also presents a new threat connected to risk and compliance in banking. Banks can now grow to reach greater heights unencumbered by regulation, but with a looming axe waiting to fall. It is imperative that you are committed to your compliance process and stay aware of what’s to come if you want to be prepared for future growth. To guide you, we have identified three best practices for risk and compliance in midsized banking.

Truth through Technology

The first step in risk management is being prepared with the proper tools that will allow you to effectively combat financial risk for compliance in banking. As companies prepare for and handle growing levels of financial scrutiny and overall growth within the company, it’s important that modern problems have modern solutions. Indeed, more than 40% of North American banks have dedicated more than 25% of their IT budget to update outdated legacy systems2.

Any institution that plans to scale up needs to have the means to efficiently complete their reconciliations, monitor their task lists and establish risk management controls throughout the entire process – this cannot be done when manually maintained spreadsheets are involved in any point of the process. Fortunately, improving banking technology benefits not only the organization but customers too. Process improvements on the backend can provide customers with better financial protections at the user level. Also, the larger your customer base becomes, the more efficient your technology-based processes will need to be.

Control Your Compliance

Because regulation enforcement can be imposed below the official threshold, it pays to be prepared. And, in an attempt to do just that, according to an American Banker Association (ABA) survey, 75% of community banks have had to hire additional staff to cope with new regulations3. However, throwing people at the problem can actually increase the chance of error because you’re essentially compounding the risk of data-entry mistakes during the reconciliation and entire financial close process. Manual spreadsheets do not provide sufficient visibility to all the possible instances of error and their sources.

In order to stay competitive, you must accelerate data-driven business decisions with real-time information through an improved financial close process. In such tools, risk-based alerts allow you to respond and correct issues before they rise to the level of outside scrutiny. Your organization would be able to thrive, safely without necessarily needing to hire additional staff.

Bring it All Together

Once your manual processes have been replaced with automation, then it’s time to take a wider view and tackle your outside hazards. Institutions that grow successfully implement a culture of risk management. From CFO to staff accountant, your entire organization must be aware of the regulations, both internal and externally mandated, and how they are handled.
Moving forward, your organization must be prepared for increased regulation and oversight through enhanced technology. A technological boost will tighten your controls as all employees put their best foot forward for risk management and compliance in banking.